What Expenses Are Utilities?

Types

Several types of household and businesses expenses fall into the category of utilities. In general, utilities are essential services a property owner pays for on a recurring basis, as with a monthly bill. Common utility expenses include the costs of water service, sewer usage, electricity and heating fuel, such as natural gas. Other services, such as Internet service, telephone service and cable or satellite television are not utilities because they are not essential. However, they may still have some of the same tax implications as utility expenses.

Businesses, including home-based businesses, can deduct the cost of utility expenses from taxable income. In these cases, utility expenses are deductible because they represent business expenses that are essential to operating and making a profit. The amount a business can deduct from its taxes based on utility expenses varies from one circumstance to another. Homeowners who have home offices can deduct portions of their household utility bills as business expenses but only portions that are proportional to the percentage of their homes that function as business space.

Landlords face special tax implications for utility expenses their tenants pay. Landlords must claim all of the rental income they receive as taxable income at the end of each year. However, if tenants pay utilities that they are not required to pay in a lease, even if they deduct the amount they spend on utility bills from rent, landlords must claim these utility expenses as rental income.

Accounting for utility expenses can be as simple as keeping or recording the total amount of regular utility bills during each tax year. In some cases, this process is more complex. Homeowners can deduct percentages of their utility bills as business expenses if they have home offices. For example, a homeowner with a home office that occupies 10 percent of the house and is used only for business purposes can deduct 10 percent of monthly electrical and heating bills as business expenses. Businesses account for utility expenses as operating costs in their balance sheets, cash flow statements and other financial statements.